Bubbles Do Burst

Posted By
Joel Libava
On
April 19, 2012 @ 8:00 am
In
Small Business News |
9 Comments

I can’t decide if it was more fun to burst the bubbles that I was blowing through one of the bubble wands that I used as a kid or if it was more fun to watch them float high up in the sky, hoping that they wouldn’t burst. But, they always did. It’s just what bubbles do.

Bubbles occasionally burst in business, too.

Anita Campbell, Founder of Small Business Trends, recently wrote about Instagram[1], the photo-sharing application that was purchased by Facebook for $1 billion. In her thought provoking article, she made a point mentioning the fact that The New York Times, (which has been publishing continuously since 1851) has a public stock value less than Instagram’s $1 billion price tag. (Amazing!)

In response to one of the comments on her post, Anita responded by reminding readers of the fact that Instagram doesn’t even have a revenue model yet. And yet, Facebook wrote a huge check for it. What gives?

It’s been said that, “Pain has no memory,” and this transaction could prove to be one of the best examples ever given for that quote. Could we be headed into another dot-com bubble?

To refresh your memory, I’ve included the formal definition of one, for your reading pleasure. From Wikipedia[2];

“A combination of rapidly increasing stock prices, market confidence that the companies would turn future profits, individual speculation in stocks, and widely available venture capital created an environment in which many investors were willing to overlook traditional metrics such as P/E ratio in favor of confidence in technological advancements.“

Maybe this time it will be an “App” bubble…or maybe even a “Tool” bubble. Only time will tell.

Naturally, I started thinking about my industry, and some of the possible “Franchise” bubbles that could be on the horizon, but for reasons that have nothing to do with a “no revenue” model. Take these examples:

Example #1: Frozen Yogurt

In the 1980’s, shops appeared almost everywhere; the big names were Arkansas-based TCBY[3], and I Can’t Believe It’s Yogurt, which was purchased by Yogen Fruz[4] in 1996.

I remember how “hot” frozen yogurt was back then, because it was around the time my Dad started his franchise consulting business, and TCBY was all he talked about. TCBY remained popular for a few years, but they ran into problems, and ended up being bought by Mrs. Fields Famous Brands. (Mrs. Fields just recently avoided a 2nd bankruptcy filing.)

Two dominant brands battled it out in the 80’s, and both were bought out. Today, there are more than 20 different frozen yogurt franchise brands competing for prime retail space, and consumer dollars.

(FYI; in the past year, I’ve been contacted by no less than four people who’ve wanted guidance on turning their one-independent frozen yogurt shops into franchises.)

Example #2: Senior Care

On the surface, seniors are a strong demographic to target. According to the US Census Bureau[5], 20 percent of the US population will be 65 and over by the year 2050. (Currently, it’s around 13 percent.) Obviously, this is a growing market.

Recently, I thumbed through a recent copy of The Franchise Handbook[6], a 25-year old publication that’s delivered to bookstores on a quarterly basis, and counted 35 different Senior Care franchises. While that may sound like a lot of franchises focused on the senior population, you need to realize that those are only the ones that advertised in one particular publication. There are even more.

In addition to the plethora of franchises that are focused on senior care, there are thousands of independent small businesses that offer the exact same services throughout the country.

Those are two segments in franchising that I’m keeping a close eye on. I’m also monitoring trends in fitness franchises, food franchises, (especially burger and pizza operations) and commercial cleaning franchises.

So far, all the franchise types that I’ve mentioned are bringing in revenue, and for the most part, they’re adding new units.

Here are my questions:

Are these franchises still selling like mad because there’s a real need for their services and/or products?

Are franchise development teams able to easily sell new units because they’re using the, “There’s still plenty of business out there,” mantra?